OBLIGATION TO PAY SOCIETY MAINTENANCE CHARGES BEFORE POSSESSION OF A FLAT
Updated on 24.07.2022
Well, the responsibility is not of the allottee for the period prior to getting possession of his flat. The allottee is not under any obligation to pay society maintenance charges before possession of a flat.
While getting possession of your Flat is by itself a herculean task these days there are surprises that come along with the possession. Along with the snag list which the builder is yet to clear you also receive a grand welcome from your Housing Society of the concerned project with a Society Maintenance Charges bill consisting of arrears ranging from two quarters to four and in many cases even more than that for a period prior to getting possession of you flat. For any allottee who has finally got possession of his dream house, nothing can be more distressing and irritating than receiving a bill for not being able to use the amenities which he was longing for. More irritating is the fact that the maintenance bill comes with an interest charged on the arrears.
The allottee is certainly not liable to pay maintenance charges for a flat for any period prior to the date of his getting possession of the Flat. This is because he was not in a position to use the amenities. This is also because payment of charges for maintenance to the society brings in the element of contractual relationship with the Housing society, which did not exist prior to the allottee getting possession of the flat. This is also because the law did not permit the allottee to take possession before receiving the Occupancy Certificate. Having said so, now let us have a look at the provisions of law regards housing societies and their maintenance rather, payment of society maintenance charges before possession of a flat.
Contract Law –
Initially, there is an agreement between the promoter and the purchaser of the flat who for all purposes is styled as allottee. At this stage, both have partly performed their respective obligations, with the promoter required to give possession of the flat to the allottee within a specific date, and the allottee holding back normally in most cases at least around 20% of the balance payment towards the flat till he gets the possession. Thereafter follows the usual delay in giving possession of the flat in most cases within the stipulated period in the Agreement for sale and therefore it’s a breach of the contract on the part of the promoter.
If there is a breach of the contract by the promoter it is obvious that it’s the promoter who has to bear the consequences of the breach. However, many promoters try and manage charging maintenance costs to the allottee even for the period of delay in handing over the possession, which is allowing him to earn a premium on his breach and such a collection will be wrong in law. There are cases where promoters ask for maintenance charges even before they get an occupancy certificate which too, is a wrong practice and we will be dealing with this issue in the later part of this article. Further, the promoter at some stage agrees with the allottees to get the cooperative housing society of the allottees or the association of allottees registered as is required by law. When the promoter agrees and applies for the registration of the society, the by-laws of the housing society along with additional terms and conditions define the rights and obligations between the promoter and the allottees. THE FUTURE BUYERS AND ALLOTTEES WHO HAVE NOT RECEIVED POSSESSION OF THEIR FLATS AT THE TIME OF APPLICATION FOR REGISTRATION OF THE SOCIETY, ARE NOT PARTIES TO SUCH AGREEMENT AND THEREFORE DO NOT BECOME MEMBERS OF THE SOCIETY ON ITS REGISTRATION AND ACCORDINGLY, THEY HAVE NO OBLIGATIONS TOWARDS THE NEWLY FORMED HOUSING SOCIETY.
Finally once the promoter offers the allottee to take possession either belatedly or within a stipulated time, and the buyer pays the balance amount for the flat and takes the possession of the flat, both the parties can be said to have fulfilled their respective obligations unless disputed for breach of contractual terms and of course subject to promoters defects liability.
At the time of taking possession, the allottee is required to complete the formalities for membership of the Housing society. While taking possession of the flat and membership of the society, the allottee is deemed to have accepted the by-laws of the Housing society framed under the Cooperative Societies Act, which forms the terms and conditions for their relationship. As per the by-laws, the Housing society undertakes to provide services of maintenance of the society, wherein the buyer agrees to pay the charges for the maintenance and the by-laws are the contractual terms & conditions between the two. Contractually it is now the buyer’s responsibility to pay the maintenance charges to the housing society after it receives the occupancy certificate and not before and therefore no further discussion is required on the liability of the society maintenance charges before possession of a flat since before possession there is no contract between the Housing society and the Allottee. However, the conflict between the allottee and the housing society in respect of maintenance charges is normally with respect to the period prior to the allottee being able to take possession. Therefore, considering the provisions of the law on the point would help us understand that it is the promoter’s obligation to bear the maintenance charges and not the allottees, and for the period prior to possession the Housing society should be recovering the charges from the promoter.
Obligation to pay society maintenance charges before possession of a Flat under RERA read with provisions of MOFA –
While under the contract law the position had always been the same whereby the terms of the agreement between the parties govern their relationship, this very concept is misinterpreted by promoters to add clauses unfavorable to the buyer disregarding provisions of the law in respect of the real estate sector. However, what few know is the fact that clauses contrary to the provisions of law do not hold validity. While most states have their local laws also for the real estate sector let us look into some provisions relevant to society maintenance charges, relating to the subject under discussion under the central enactment The Real Estate Regulation and Development Act. 2016 (in short RERA) –
Section 11 deals with the various functions & duties of the Promoter / Builder. Under sub-section 4 the responsibilities of the promoter are listed down.
Section 11(4)(d)
the promoter is responsible for providing and maintaining the essential services, on reasonable charges, till the taking over of the maintenance of the project by the association of the allottees.
So under RERA until the maintenance of the project is taken over by the association of allottees maintenance is the promoter’s responsibility who has to do it at reasonable charges which he can charge after receiving the occupancy certificate and therefore, there is no conflict as to the society wrongfully charging the maintenance charges to the allottees at this stage. The occupancy certificate is an important factor without which the promoter cannot offer the possession of the Flat nor can he charge for the maintenance as observed above, the reason being –
- a) RERA Section 11(4)(b)
“The promoter shall be responsible to obtain the completion certificate or the occupancy certificate, or both , as applicable, from the relevant competent authority as per local laws or other laws for the time being in force and to make it available to the allottees individually or to the association of allottees, as the case may be”.
Now as per section 11(4)(b) the promoter is required to obtain the completion / occupancy certificate, or both, as applicable, from relevant competent authority as per local law or other laws… RERA has not defined local laws and the question of whether Maha. RERA Rules will prevail as the local law or The Maharashtra Ownership Flats Act (in short MOFA) will be the local law to be followed can be answered only by RERA defining ‘local laws’ or by the Order of the Court. However, it would be convenient for us to refer to the provisions of both the statutes for a general understanding of the law on the point. While the Maha. RERA Rules do not specifically prescribe much in respect of occupancy certificate, the Model form of agreement under the Maha. RERA rules 2017, at Annexure A under clause 7 .1, under the heading ‘procedure for taking possession’, does stipulate that the promoter upon obtaining occupancy certificate from competent authority and payment made by the allottee as per the agreement shall offer in writing possession of the Appartment. Well, as per the explanatory note under Annexure A preceding the model form of agreement, clause 7.1 cannot be said to be contrary or inconsistent with any provisions of the Act, Rules, and Regulations, and therefore it would classify as a valid clause. The local law in existence on the subject when RERA came into force in the state of Maharashtra is MOFA.
As per section 3(2)(i) of MOFA –
“A promoter shall not allow persons to enter into possession until a completion certificate where such certificate is required to be given under any law, is duly given by the local authority(and no person shall take possession of a flat until such completion certificate has been duly given by the local authority”).
The above provisions of both the statutes convey that the promoter has to get the occupancy certificate before he can offer possession. So promoter cannot insist upon the buyer to take possession of the flat till he gets the Completion and/or Occupancy certificate and when a person is not entitled or prohibited as per law from getting possession till the promoter gets the completion / occupancy certificate, he also cannot avail services of maintenance for such a place without possession. In other words, HOW CAN THE PROMOTER OR THE HOUSING SOCIETY CLAIM TO HAVE PROVIDED MAINTENANCE SERVICES TO AN ALLOTTEE AND CHARGE HIM FOR THE SAME WHEN IN FACT HE IS NOT PERMITTED TO TAKE POSSESSION OF THE FLAT IN THE FIRST PLACE WITHOUT COMPLETION / OCCUPANCY CERTIFICATE, AND NEITHER IS THE PROMOTER ALLOWED TO GIVE POSSESSION UNDER SUCH CIRCUMSTANCES.
- b) RERA Section 11(4)(g)
“The promoter shall pay all outgoings until he transfers the physical possession of the real estate project to the allottee or the associations of allottees, as the case may be, which he has collected from the allottees, for the payment of outgoings(including… maintenance charges…)”
The bracketed word ‘including’ in section 11(4)(g) is followed by other costs such as land cost, ground rent, municipal taxes, etc. apart from maintenance charges. The sub-section is clear about the promoter’s responsibility to pay all the outgoings until he transfers the physical possession of the real estate project to the allottee or association of allottees when it specifically uses the word ‘shall’ meaning thereby that the provision is mandatory.
MOFA sec.6
“A promoter shall, while he is in possession and where he collects from persons who have taken over flats sums for the payment of outgoings even thereafter, pay all outgoings(including ground rent, municipal or other local taxes, taxes on income, water charges, electricity charges, revenue assessment, interest on any mortgage or other encumbrances, if any) until he transfers the property to the persons taking over the flats, or to the organisation of any such persons.
The National Consumer Dispute Redressal Forum has already held in Shree Rajeev Nohwar & anr vs Sahajanand Hi-tech case that “ the term ‘outgoings’ in section 6 of MOFA is inclusive and not exhaustive… The said ‘outgoings’ in our opinion shall include not only property tax but also maintenance charges. Even otherwise it is wholly unfair for the purchaser to pay the tax or maintenance charges before he obtains title to the property or takes the possession of the property after issuance of the completion certificate ”.
Accordingly as per sub-sections 11(4)(b) of RERA & 3(2)(i) of MOFA, it is the responsibility of the promoter to get the occupancy certificate or the Completion certificate as provided in both the statutes respectively, before he can offer possession. Further, under section 11(4)(g) of RERA, the promoter has to pay all outgoings which include ‘maintenance charges’ which he has collected from the allottees until he transfers the physical possession or as per MOFA section 6, he transfers the title of the real estate project the allottees. Basically, the promoter has to get the Occupancy certificate. Thereafter he can offer possession, and simultaneously he will be able to charge for the maintenance once the Occupancy certificate is received if the maintenance is not taken over by the association of allottees.
It is also pertinent to note that both section 11(4)(g) of RERA and Section 6 of MOFA refer to payment of outgoings from money collected from the allottees / persons and thereby create a right in favour of allottees to initiate penal action or proceedings for recovery of money not used by the promoter for the purpose for which it was given. Further, both these provisions of law ALSO CREATE A RIGHT IN FAVOUR OF THE ALLOTTEES COOPERATIVE HOUSING SOCIETY TO RECOVER MONEY PAID BY THE ALLOTTEES TO THE PROMOTER IN CASE THE PROMOTER DOES NOT USE SUCH MONEY FOR THE PURPOSE FOR WHICH IT WAS GIVEN. FURTHER, IT WOULD ALSO BE THE RESPONSIBILITY & DUTY OF THE ALLOTTEES COOPERATIVE HOUSING SOCIETY OR ASSOCIATION OF ALLOTTEES TO GET THE HOUSING SOCIETY REIMBURSED BY THE PROMOTER IN CASE OF ANY DEFAULT OF SECTIONS 11(4)(g) OF RERA OR SECTION 6 OF MOFA AND A FAILURE TO DO THE SAME WOULD AMOUNT TO DEFICIENCY ON THE PARTY OF THE HOUSING SOCIETY IN RESPECT OF ITS SERVICES TO ITS MEMBERS.
In another case Tushar Shetty vs Bhupeshbabu karappan Niliparambil, Tushar Shetty the buyer of a flat in Navi Mumbai in the year 2010 was promised possession in 2014. The buyer refused to move into the flat as the builder did not get OC. The builder insisted that the buyer pays for the maintenance of the flat whether he is residing there or not. Before Maha RERA the buyer refused to take possession till he gets the OC and also requested that the builder should not demand maintenance till he gets the occupancy certificate. The Maha RERA ruled in the buyer’s favour holding that he does not have to pay the maintenance till he possesses the apartment. There are other judgments with respect to cases under RERA and MOFA wherein it has been clearly held that Promoters cannot insist upon buyers to take possession till the occupancy certificate is received. In fact as per the recent trend of the judgments, allottees cannot be charged with maintenance charges without occupancy certificate and without possession being offered or without giving possession. In fact, if the promoter cannot levy maintenance charges till occupancy certificate is issued the same would apply to a housing society.
Accordingly based on the above analysis of the provisions of RERA and MOFA an allottee is not under any obligation for payment of society maintenance charges before possession of a flat. While winding up the discussion the various provisions of the law on the point can be summed up as under –
A Housing society or promoter cannot charge maintenance to the allottee till the allottee gets possession of the flat. For any period prior to getting the Occupancy certificate the promoter or the Housing society cannot charge for maintenance costs. The law is well settled that a promoter cannot offer possession before an occupancy certificate. Once the occupancy certificate is received the promoter or the Housing society can charge the maintenance costs to the allottee provided the allottee is offered possession by the promoter. In case of delay in handing over possession to the allottee, the Housing society cannot collect the maintenance for the delayed period from the allottee. If the allottee does not take possession even after the promoter offers him the possession the allottee will be liable to pay the maintenance to the society from the date on which he is offered the possession till the date he accepts the possession and for the period thereafter.
Formation of association of allottees & Obligation to pay society maintenance charges before possession of a flat –
As per Section 11(4)(e) of RERA, it is also the responsibility of the promoter to enable the formation of an association or society or cooperative society of allottees as per local laws. Here again if Maha. RERA Rules are to be followed as local law then as per Rule 9 of the Maha. RERA Rules the promoter has to submit an application to the Registrar for registration of the cooperative housing society under the Maharashtra Cooperative Societies Act, 1960 or a company or any other legal entity, within three months from the date on which 51% of the total number of allottees in such a building or a wing, have booked their apartment.
Similarly, under section 10 of MOFA, it’s the promoter’s responsibility to enable the formation of an association of allottees and the promoter shall join, in respect of the flats which have not been taken, in such application for membership. Here the words ‘not been taken’ would mean unsold flats and the promoter joins in as a member of the society in respect of unsold flats, with the by-laws as per the Cooperative societies Act, forming the terms and conditions between the promoter and the Housing society. Accordingly, the promoter pays the maintenance charges on behalf of the unsold flats. Here, it wan’t be wrong to say that the case of ‘flat of which possession is not given’, would fall in the same category of flat ‘not been taken’ and therefore the promoter is responsible to pay the maintenance charges is respect of such flats till possession is offered along with Occupancy certificate.
Further under MOFA Rules 1964, Rule 8 the promoter is required to submit the application to the registrar for registration of the cooperative society or the company, as the case may be within four months from the date on which the minimum number of persons required to form such organisation have taken flats.
Both RERA and MOFA prescribe the requirement of the minimum number of allottees who have booked/taken flats, for making an application for registering their association or cooperative society or company. Both these sections 11(4)(e) of RERA and 10 of MOFA, and the rules prescribing the procedures to be followed in registration of these societies do not require the Occupancy Certificate as a condition precedent to registering a housing society. The said housing society can be registered even for an under-construction project without an occupancy certificate provided the minimum number of allottees, as required by RERA and MOFA are available who have taken or booked flats and at the same time maintenance charges cannot the collected by the promoter or Allottees cooperative housing society before getting the occupancy certificate, as observed by the Supreme court and recently in Februarly 2022 by the National consumer dispute redressal commission. We are thus poised with the question of the purpose of forming a housing society in the absence of an occupancy certificate, where even if the promoter transfers the maintenance to the housing society, the society will not be able to charge for maintenance till occupancy certificate is issued.
Further, after the association of allottees is formed it is the promoters obligation to pay the maintenance charges to the association of allottees or allottes cooperative housing society in respect of unsold flats or flats in respect of which possession is not given after receiving the Occupancy Certificate, as per section 11(4)(g) of RERA or section 6 of MOFA. Well here again the promoter can collect reasonable charges from the buyer who has not taken possession when offered by the promoter on receiving the Occupancy Certificate. In case of delayed possession due to the promoter, it will be the promoter’s responsibility to pay the maintenance charges as the breach is on the part of the promoter besides there are no contractual relations between the Allottees Cooperative housing society and the Allottee at this stage.
The legal position with reference to the Cooperative Societies Act. –
One has to understand that in the whole process of the allottees cooperative housing society or association of allottees taking over the maintenance of the project from the promoter, certain rights and obligations are created between the promoter and the housing society. Thus there is a privity of contract between the promoter and housing society meaning thereby that rights and obligations are created between the two by way of Model by-laws as well as other terms and conditions agreed between the housing society & the promoter which are not binding to anyone not a party to such an agreement. So the future purchaser or allottees of flats of which possession was not offered had no say in such an agreement neither were they in any legal position to intervene. At the relevant time, the housing society could have well secured the payment of maintenance charges from the promoter in respect of unsold flats as well as flats of which possession had not been given. If the housing society does not secure these payments or recover these payments then they have in fact failed in their duty and responsibility towards the allottees i.e. members of the Housing society which is worth contesting in the courts of law. BUT THE HOUSING SOCIETIES FAILURE TO SECURE THE DUES OF THE SOCIETY FROM THE PROMOTER WHILE ENTERING INTO ANY KIND OF AGREEMENT WITH THE PROMOTER OR THEREAFTER DOES NOT LEAVE THEM WITH THE OPTION OF RECOVERING THE DUES FROM THE ALLOTTEES AS THE AGREEMENT BETWEEN THE PROMOTER AND THE HOUSING SOCIETY DOES NOT CREATE ANY OBLIGATIONS OF SUCH ALLOTTEES.
One also has to take into consideration that the allottee becomes a member of a housing society after he takes possession of the flat on completing the formalities under by-law no. 19 of the Model by-laws framed under the cooperative societies Act. Once these formalities are completed the allottee is accepted as a member of the Housing society and thereby the by-laws are binding on him and not before.
Legal remedies available to allottees when charged for maintenance before possession –
We find in most cases that the promoter does not pay for the maintenance charges of the flat for the period of delay in handing over possession. When the promoter does not pay charges for this period in respect of unsold flats or flats of which possession is delayed, the society while trying to recover from the promoter these charges, also tries to play safe by charging these dues to the allottee as arrears and also starts charging interest on these arrears. This is illegal on the part of Housing the society which is nothing short of harassment & mental torture. In such cases, the allottees can approach the Consumer court for harassment and mental torture and also for its failure to recover the dues from the promoter. The allottees have other options also under RERA and Cooperative societies Act, to initiate proceedings against the promoter and the housing society.
Responsibility of secured creditors to pay maintenance charges –
One more point which needs some contemplation is the status of “secured creditors” like banks exercising their rights under section 13(4) of SARFAESI Act. Once the Bank as the secured creditor takes steps under Section 13 of the act. the bank can proceed under section 13(4) to take further steps which include taking possession of security (the project in the present context) with the right to transfer by way of lease, assignment or Sale (which includes auctioning) for realising the secured asset; to take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale; appoint any person to manage the secured assets the possession of which has been taken over by the secured creditor and require at any time any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower to pay the secured creditor so much of the money as is sufficient to pay the secured debt. The question is are these secured creditors “promoters” under RERA and therefore liable to pay the maintenance until handing over of the possession with occupancy certificate.
Well, the answer to the above is YES. The banks as secured creditors are assignees falling under the definition of a “promoter” under RERA and if the bank further assigns the debt to anyone then the new assignee too will be a “promoter” as they step into the shoes of the promoter after taking possession and the allottees will have their rights against such secured creditors. Recently the Supreme Court has upheld a Judgment of the Rajasthan High Court in the case of Union Bank of India vs Rajasthan Real Estate Regulatory Authority, with its observation on the judgment that the RERA Authority does have jurisdiction to entertain a complaint by an aggrieved person against the bank if the bank as a secured creditor takes recourse to any of the provisions of section 13(4) of SARFAESI act. Having said so the banks as secured creditors would also be liable to pay the maintenance charges on behalf of the allottees till actually handing over the possession.
Conclusion –
As per section 11(4)(b) of RERA & 3(2)(i) of MOFA, the promoter has to first get the completion certificate / occupancy certificate and only thereafter can he offer possession to the allottee and / or charge reasonable maintenance costs to the allottees under section 11(4)(d) of RERA till the taking over of the maintenance of the society by the association of allottees. Once the association of the allottees takes over the maintenance of the society the promoter is, as per section 11(4)(g) of RERA and section 6 of MOFA, under the obligation to pay maintenance charges on behalf of the flats to which possession has not been given, and therefore the question about the buyer of the flat paying the maintenance charges to the society for the delayed period of possession of the flat does not arise. Even otherwise it has been held to be unfair to charge maintenance costs to the allottees for the period prior to getting possession. Further, even if there is no delay in handing over possession of the flat, eg. a ready-to-move-in flat which was unsold for a long time, the Housing society should recover the amount from the promoter for the period when the flat remained unsold.
Therefore an allottee is under no obligation to pay society maintenance charges before possession of a flat.
#RERA #MAHARERA #societymaintenancecharges #cooperativehousingsociety
The contents of this article are the views and opinions of the author on the subject matter. The readers are expected to take expert advice based on the facts and circumstances of their case.